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DRAFT REPORT (COM(2023)0532 – C90341/2023 – 2023/0321(CNS))

On the proposal for a Council directive on Business in Europe: Framework for Income Taxation (BEFIT)

ECON-PR-773162

Committee on Economic and Monetary Affairs · Rapporteur: Evelyn Regner

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The draft report approves the Commission proposal for a Council directive on Business in Europe: Framework for Income Taxation (BEFIT) with amendments. It lowers revenue thresholds, extends the permanent establishment concept, and introduces a formulary apportionment after 2035. It also tightens interest limitation, adds controlled foreign company rules, restricts output-based tax incentives, and sets penalties for non-compliance.

Committee position. The rapporteur proposes to approve the Commission proposal with amendments, including lowering revenue thresholds, extending permanent establishment, and introducing a formulary apportionment after 2035.

Key points

  1. Approves the Commission proposal as amended and calls on the Commission to alter its proposal accordingly.
  2. Extends the concept of permanent establishment to include significant economic presence, with a revenue threshold of EUR 1 000 000.
  3. Lowers the revenue threshold for mandatory application from EUR 750 000 000 to EUR 40 000 000 as of 1 July 2035.
  4. Allows groups with revenues below the threshold to opt in, and reduces the exclusion threshold for groups with ultimate parent outside the Union to 3% or EUR 40 million.
  5. Sets interest limitation rules: exceeding borrowing costs deductible up to 75%, limited to 20% of EBITDA.
  6. Adds a royalties limitation rule for payments subject to effective tax rate below 9%.
  7. Includes 50% of entertainment costs in the tax base.
  8. Adds controlled foreign company rules to include non-distributed income from certain categories.
  9. Changes depreciation periods: buildings 40 years (except industrial 25), other tangible assets minimum 10 years, intangibles 15 years.
  10. Replaces the transitional allocation rule with a formula based on equal weights of sales, labour, and assets as of 1 July 2035.
  11. Restricts post-allocation adjustments: Member States shall not offer output-based incentives like patent boxes.
  12. Sets penalties at a minimum of 0.1% of turnover for failure to file or deliberate misreporting in the BEFIT information return.

Who is affected

  • Large multinational groups with annual combined revenues over EUR 750 million (later EUR 40 million) are subject to mandatory rules.
  • Smaller groups may opt in to the framework.
  • Digital businesses with significant economic presence in a Member State are treated as having a permanent establishment.
  • Member States are restricted from offering certain tax incentives and must set minimum penalties.

Figures and deadlines

  • EUR 750 000 000 or more in at least two of the last four fiscal years (from 1 July 2028 to 30 June 2035).
  • EUR 40 000 000 or more in at least two of the last four fiscal years (from 1 July 2035).
  • EUR 1 000 000 in total revenues for significant economic presence.
  • 0.1 % of turnover as minimum penalty.
  • 75 % of exceeding borrowing costs deductible, limited to 20 % of EBITDA.
  • 9 % effective tax rate threshold for dividends and royalties.

Legal basis: Article 115 of the Treaty on the Functioning of the European Union